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Unintended Consequences of Furloughing Employees

By Michael J. Gore

Many employers are rightfully concerned with how best to manage the implications of the COVID-19 crisis on their business, with some considering “furloughing” their employees as a way to mitigate the financial impact.

While this trend is increasing in popularity, there are a number of unintended consequences associated with furloughing employees that businesses should consider in the decision-making process. For example, issues may arise regarding non-compete agreements or employee exemptions, such as:

  • High-level employees who are often subject to written employment agreements may nevertheless be entitled to pay during a furlough.

  • A furlough could result in a violation of an employee’s agreement, and a contract’s breach is traditionally a defense to an action to enforce a non-compete. Therefore, if the employer later seeks to enforce a non-compete or other restrictive covenants against a former employee, the employer may be hindered in its ability to protect the business.

  • Employees who are traditionally exempt under the Fair Labor Standards Act (FLSA), may fall out of an exemption if the employee is no longer paid a salary. A furlough could cause exempt employees to now become non-exempt under the FLSA.

The failure to consider the unintended consequences of furloughs or any layoffs could significantly impact your business beyond COVID-19.

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